They settle based on the average of the fed funds target rate for the month though, so the early cut will affect the monthly average. That can skew the probability indications taken from the contracts.

Right now the Jan contract is trading at around a 3.91% implied rate. The overnight Fed Funds rate doesn't perfectly track the target, but for the sake of a quick calculation let's assume it does - that means the first 21 days of Jan Fed Funds was at 4.25, and if the next 10 are at 3.50 then the monthly average would come it at about 4%. That would make the Jan contract near fair value (or pricing in small odds for another cut at the scheduled meeting). I'm sure the probability is a bit different in this scenario when you use the actual overnight rate...

Interesting that the Feb contract is pricing lower rates (as you pointed out) since the there's no FOMC meeting scheduled for Feb (they're scheduled for 1/30 and then 3/18)!

They settle based on the average of the fed funds target rate for the month though, so the early cut will affect the monthly average. That can skew the probability indications taken from the contracts.

Right now the Jan contract is trading at around a 3.91% implied rate. The overnight Fed Funds rate doesn't perfectly track the target, but for the sake of a quick calculation let's assume it does - that means the first 21 days of Jan Fed Funds was at 4.25, and if the next 10 are at 3.50 then the monthly average would come it at about 4%. That would make the Jan contract near fair value (or pricing in small odds for another cut at the scheduled meeting). I'm sure the probability is a bit different in this scenario when you use the actual overnight rate...

Interesting that the Feb contract is pricing lower rates (as you pointed out) since the there's no FOMC meeting scheduled for Feb (they're scheduled for 1/30 and then 3/18)!

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I used Feb because as you stated there is no meeting that month, and I assumed that it should give an semi-accurate read of the events that will take effect on Jan 31. It may or may not be flawed logic, I don't know.